Summary

We study the effect of subsidies subject to export share requirements, that is, conditioned on a firm exporting at least a given fraction of its output. We show that this type of subsidy boosts exports more and provides greater protection for domestic firms than a standard unconditional export subsidy, albeit at a substantial welfare cost.

Abstract

We study the effect of subsidies subject to export share requirements (ESR) — that is, conditioned on a firm exporting at least a given fraction of its output — on exports, the intensity of competition and welfare, through the lens of a two-country model of trade with heterogeneous firms. Our calibrated model suggests that this type of subsidy boosts exports more and provides greater protection for domestic firms than a standard unconditional export subsidy, albeit at a substantial welfare cost.